Mortgage bonds are back to old behaviors this morning. After briefly breaking out of the upside of the sideways channel, bonds opened the day to the down side and are now right back into the channel they have been trapped within for several weeks. Given the lack of economic reports today, the move lower was highly anticipated in yesterday’s update. The current channel has built a significant amount of strength. So much so that it will likely take some sort of weak economic news to provide bonds with the strength to break through.
Mario Draghi, the head of the European Central Bank (ECB) left interest rates unchanged this morning. We don’t see this as having too much of an impact in our markets today. However, he is speaking this morning which could add an increased level of volatility to our markets. Therefore, we must be watchful, as weakness could continue to build.
Although there is strong support just below current levels provided by the 25 and 50 day moving averages, we see little room for significant improvements today. Therefore, we will maintain our locking bias.